Home of Blue Light Special Far From Singing the Blues

NEW YORK (AdAge.com) -- With all the chatter about Walmart winning in the recession, it's easy to miss another retailer that's also doing pretty well: Kmart. Yes, Kmart.

In contrast to its sibling Sears, which has seen same-store sales worsen since December 2007, same-store sales at Kmart have gradually risen. In the most recent quarter, Kmart reported a dip of only 2% compared with 4% drop at Target, though though it's still far behind recessionary darling Walmart, which posted a same-store sales gain of 3.6%. It's an impressive showing for Kmart; even though it is lapping weaker results than its competitors, the boost it's seeing as a result of the recession is undeniable.

First, its messaging doesn't revolve around price. A value message is essential, of course, but Kmart's not going to tussle with Walmart. That's a smart move, considering Walmart is the undisputed low-price leader, and Target's me-too efforts have largely fallen flat.

Instead, Kmart has developed creative recession-busting programs and resurrected or reenergized popular value-oriented promotions. For example, the past two weekends, the retailer unearthed vintage blue lights (newer locations used blue balloons) and began touting Blue Light Specials, the limited-time offers that made the retailer a part of pop culture before being largely phased out in the early 1990s.

Recession-busting retailer
"We know it has a lot of equity, and we know that when it's done well it's meaningful to the customer and has the ability to energize our associates and store experience," said Mark Snyder, chief marketing officer at Kmart. "We got some great traction through apparel, home electronics and a couple of other categories like sporting goods and seasonal. [Continued testing] will tell us whether this is a great long-term strategy for us to have in the promotional arsenal."

Likewise, Kmart's promotion of layaway last holiday season differentiated it from rivals and attracted new customers. The retailer struck again with the creation of Smart Assist, a program being tested in Michigan. It offers unemployed customers an additional 20% off store brands for up to six months. If the program expands to other states after the initial test, you can bet it will pull in new shoppers. The nation's unemployment rate is hovering at 9.5%, after all, and is expected to go higher.

"Everyone else is talking about things on sale and food and consumables, and Kmart has all of those things," Mr. Snyder said. "But even in a recession, where price and value are so important, you can't forget about the importance of going to the marketplace with a differentiated message."

Kmart has also had more cash to put behind that message. According to TNS Media Intelligence, measured media spending at Kmart rose 13% to $194 million in 2008. DraftFCB is Kmart's creative agency, while MPG handles media. Both agencies referred requests for comment to the client.

The addition of well-loved Sears brands such as Kenmore, Craftsman and Diehard has also been a boon for Kmart. The retailer has been adding limited, convenience assortments to a number of locations, though at least one full-blown appliance store opened this month in an Alabama Kmart store.

Best of both brands
"Kmart has not only all the Kmart brands but all the good Sears brands," said one executive close to the retailer, though of course that gives Sears less of a point of differentiation.

All of those factors are pulling in new customers, and Kmart is scrambling to take advantage by playing up its fashion wares. That's an area in which it has had trouble gaining traction with consumers, thanks to dowdy images solidified in consumers' minds years ago.

Mark Snyder, chief marketing officer, Kmart
The recently launched Kmart Design website highlights initiatives that haven't exactly become a part of the consumer consciousness, such as the fact that the retailer employs several hundred designers at studios in New York and Chicago. Videos on the site document Kmart designers from its home division on trend trips to Paris and London. And a Twitter feed related to the site illustrates just how media-savvy the retailer has become; recent tweets highlight a styling session with mommy bloggers in Chicago for the annual BlogHer conference.

Kmart also has purchased a significant print program with Condé Nast Media Group that will include an insert in the September issues of Vogue, Glamour and Lucky. "[We're] building credibility around quality and trend-forward style while we have the opportunity with a very willing audience," Mr. Snyder said.

But while Kmart execs are embracing if not downright enjoying this recession, the mood among Sears execs is more subdued. When asked why same-store sales continue to decline, Sears CMO Don Hamblen said he and his team are asking themselves that same question. Still, there are few traces of sibling rivalry. "It's a brand that's starting to hit its stride," Mr. Hamblen said, complimenting the Kmart team. "As a mass merchant in a recession, they're well-positioned."

What you can learn from Kmart

Don't play a game you can't win: Kmart will never unseat Walmart when it comes to low prices. It knows that, and it's not out to change that. Instead, Kmart is focusing on what makes its value message different.

Press your advantage: Customers might be going to Kmart for toilet paper, but that doesn't mean they won't notice stylish sheets or trend-right dresses. Kmart is making the most of the eyeballs it has in its effort to gain fashion credibility.

Don't be afraid to publicly screw up: Kmart has been openly testing and promoting recent programs before rolling them out more broadly. It requires a thick skin and opens them up to criticism. But, in the long run, it saves time and money.

Use what you have: Layaway was not a new program. It had long been offered at Kmart, though it had been a while since anyone gave it much thought. Putting the spotlight on that program has been simple and has paid off in spades.